Crunching the Numbers Shows Why Farmers Are Seriously Considering Prevent Plant

Posted on 05/22/2019 11:12 AM

American farmers are very seriously considering taking insurance payouts instead of planting crops, as they grapple with cold, wet weather and a U.S./China trade standoff that has crimped their access to a major market. Researchers cited in a recent Wall Street Journal article say claims on corn crops could quadruple this year and soybean payouts could double.

Alan Barrett, director of consulting at our sister company Doane Advisory Services, ran some numbers earlier this week regarding how taking prevent plant might play out for an Illinois producer farming 900 acres of corn. Assuming 80% coverage with an actual production history (APH) of 215 bu. per acre with a spring insurance price of $4.00 per bu., a payout of 55% would generate a return of $378.40 per acre.

From that, he subtracted the per-acre cost of crop insurance ($25), capital cost ($143), interest and insurance ($12) and general overhead ($17), which would result in a net profit to land, labor and management of $181.40 per acre. If a producer already applied fertilizer ($95 per acre), that profit would drop to $86.40 per acre.

Taking prevent plant would reduce storage issues and eliminate the risk of a yield drag due to late planting, he explains, adding that a grower could plow under weeds and apply fertilizer early for next year. Resting the land for a year should provide a yield bounce next year.

A recent article citing Jamie Wasemiller, senior market analyst and crop insurance expert with Gulke Group, says that assuming 80% coverage, an APH of 55 bu. per acre, and production costs of $190 per acre (excluding rent) the $9.54 spring crop insurance price would translate to a prevent plant payment of $252 per acre. That means that total revenue must top $442 per acre ($252 prevent plant payment + $190 in per acre costs) to justify planting soybeans rather than taking prevent plant. Based on a fall cash price of $7.91 per bu., yields would have to top 55 bu. per acre for planting beans to be more profitable.

Of course, farmers still prefer to plant crops, and the calculations will vary by producer. But with the calendar flip to June, a wet forecast and low prices, prevent plant is an increasingly attractive option for some producers this season.

Of course, if the coming tariff aid payment is tied to 2019 plantings (in contrast to what USDA has signaled), this argument would go out the window as producers would likely plant as many acres to soybeans as possible. Details on that are expected to be released tomorrow.

Call your crop insurance agent to help weigh your options.  

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